Saturday, August 24, 2013

Weekly indicators: Steel production debuts, plus, Gallup gets a bad panel edition

 - by New Deal democrat

In July monthly data reported this past week, existing home sales rose, while new home sales fell sharply, confirming that higher interest rates are having an impact on that important, leading market. Meanwhile the Index of Leading Indicators rose sharply. A year ago this index was stalled, but it has been more consistently positive in the last 9 months, suggesting that the remainder of this year will continue to show economic expansion.

One blind spot in the high frequency weekly indicators I've been trying to fill in is manufacturing, since it would be helpful to compare it with transport. There are several weekly indexes, but these appear to mainly work backward from rail transport. I finally found one direct measure of at least one sector, so let me spotlight that this week:

Steel production from the American Iron and Steel Institute

+0.9% w/w

-1% YoY

Steel production over the last several years has been, and appears to still be, in a decelerating uptrend. Obviously there is some noise in the weekly numbers. Last week it was off -1.7% YoY, so we can start by watching to see if the uptrend re-asserts itself in the next several weeks.

Employment metrics

Initial jobless claims
  • 333,000 up +13,000

  • 4 week average 330,500 down -1500

The American Staffing Association Index was unchanged at 96. It is up +3.9% YoY

Tax Withholding
  • $119.2 B for the first 16 days of August vs. $111.0 B last year, up +8.2 B or +7.4%

  • $147.1 B for the last 20 reporting days vs. $132.4 B last year, up +14.7 B or +11.1%

This week the four week average of initial claims made a new nearly 6 year low, placing it firmly in a normal expansionary mode. Interestingly, it has been at this point in the year for each of the last three years that this same, good, downside breakout has occurred.

Temporary staffing had been flat to negative YoY for a few months, but has now also broken out positively. Tax withholding, which had one of its worst readings in the last 7 months last week, is back within its normal range for most of this year.

Consumer spending Gallup's 14 day average of consumer spending absolutely plummetted this week. Last week it was over $100 for the second week in a row, its best showing in nearly 5 years, and has been strong since late last November. Now suddenly it is back at readings of one and two years ago. Contrarily, the ICSC varied between +1.5% and +4.5% YoY in 2012, while Johnson Redbook was generally below +3%. The ICSC had a decent week, and Johnson Redbook remains close to the high end of its range. I'll have more to say about the Gallup anomaly at the conclusion of this piece.

Oil prices and usage
  • Oil down -1.04 to $106.42 w/w

  • Gas $3.55 down -0.01 w/w

  • Usage 4 week average YoY up +2.2%
The price of Oil retreated but remained near its 52 week high. The 4 week average for gas usage was, for the seventh week in a row after a long streak to the contrary, up YoY.

Interest rates and credit spreads
  • 5.44% BAA corporate bonds up +0.10%

  • 2.73% 10 year treasury bonds up +0.11%

  • 2.71% credit spread between corporates and treasuries down -0.01%
Interest rates for corporate bonds had been falling since being just above 6% in January 2011, hitting a low of 4.46% in November 2012. Treasuries previously were at a 2.4% high in late 2011, falling to a low of 1.47% in July 2012, and have decisively risen more than 1% above that mark. Spreads remain slightly above their recent new 52 week low this week. Their recent high was over 3.4% in June 2011.

Housing metrics

Mortgage applications from the Mortgage Bankers Association:
  • +1% w/w purchase applications

  • +5% YoY purchase applications

  • -8% w/w refinance applications
Refinancing applications have decreased sharply in the last 13 weeks due to higher interest rates, declining by more than 50% in total, and are now just about as bad as they have been at any point in the last 7 years. Purchase applications have also declined from their multiyear highs in April, but are still slightly up YoY.

Housing prices
  • YoY this week +10.3%
Housing prices bottomed at the end of November 2011 on Housing Tracker, and averaged an increase of +2.0% to +2.5% YoY during 2012. This weeks's YoY increase is yet another 7 year record.

Real estate loans, from the FRB H8 report:
  • down -20 or -0.6% w/w

  • up +0.1% YoY

  • +1.1% from its bottom
Loans turned up at the end of 2011 and averaged about 1% gains YoY through most of 2012.  Over the last few months, the comparisons have completely stalled.

Money supply

  • -1.4% w/w

  • +1.4% m/m

  • +7.9% YoY Real M1

  • -0.2% w/w

  • +0.9% m/m

  • +5.1% YoY Real M2
Real M1 made a YoY high of about 20% in January 2012 and eased off thereafter. Earlier this year it increased again but has backed off its highs significantly.  Real M2 also made a YoY high of about 10.5% in January 2012.  Its subsequent low was 4.5% in August 2012. It increased slightly in the first few months of this year and has generally stabilized since, although it has declined slightly in the past several months.


Railroad transport from the AAR
  • +1500 carloads up +0.5% YoY

  • +800 carloads or +0.5% ex-coal

  • +9700 or +3.7% intermodal units

  • +10,800 or +2.0% YoY total loads
Shipping transport Rail transport has been both positive and negative YoY in the last several months. This week was the second solid positive week in a row since then. The Harpex index had been improving slowly from its January 1 low of 352, but then flattened out for 9 weeks before making a new 52 week high again this week. The Baltic Dry Index has rebounded to close to its recent 52 week high. In the larger picture, both the Baltic Dry Index and the Harpex declined sharply since the onset of the recession, and have been in a range near their bottom for about 2 years, but stopped falling earlier this year, and now seem to be in a slight uptrend.

Bank lending rates The TED spread is still near the low end of its 3 year range, although it has risen slightly in the last couple of months.  LIBOR established yet another new 3 year low this past Tuesday.

JoC ECRI Commodity prices
  • down -0.46 to 124.53 w/w

  • +3.34 YoY

Before we get to the other issues, let's deal with the collapse in Gallup consumer spending. This isn't the only Gallup indicator which has collapsed over the last week or so. Gallup's unemployment rate survey increased a full percent over the last two weeks. Gallup consumer confidence also fell sharply. But the other measures of both consumer spending and employment reported above have held up nicely, or even improved. So we are left with explalining why there has been a sudden sharp downturn in all of Gallup's consumer metrics, but only in Gallup's consumer metrics. Either (1) there has been a sudden but hidden crash in the economy over the last several weeks, or (2) Gallup got an unrepresentative survey panel, as is going to happen from time to time in such surveys. Until I see evidence backing up the cliff-diving of Gallup's consumer metrics, I'm going with (2).

Otherwise, there were only 3 negatives this week: interest rates, housing loans, and the still elevated price of Oil. Steel production was positive week over week, while negative (but less so, and the overall trend is still up) YoY.

Everything else was either weakly or strongly positive. Tax withholding and commodities were weakly positive. House prices, the ICSC and JR measures of consumer spending, temporary staffing, jobless claims, gas prices and usage, money supply and bank rates, interest rate spreads, and both rail and shipping transportation, were all solidly positive.

Although several of the long leading indicators - interest rates and housing - are problematic, the shorter leading indicators in both the ECRI WLI and the Conference Board's LEI point to nearer term imporovement. Have a nice weekend.